High Court upholds 12 month restrictive covenant

A non-compete clause imposed by a financial adviser on one of its employees was held to be reasonable and valid.

The case concerned an experienced financial adviser, Jonathan Cooper, who brought numerous clients with him when he joined Merlin Financial Consultants. When Mr Cooper left Merlin to set up a rival firm, Merlin took him to court. The judgment follows a line of case law which increasingly acknowledges the right for employers in the financial services industry to impose widely drawn legal restrictions. Mr Cooper’s restriction covered the whole of the United Kingdom and lasted 12 months, and both of these measures were considered to be reasonable in the circumstances. Of relevance was the bond that Mr Cooper had with his clients, the fact that he had been given a ‘bounty’ for bringing the clients to Merlin (giving the relationship the character of a business agreement), and the nature of the industry.

Among the ‘arsenal’ of restrictions that an employer can impose on its prospective employees, a non-compete covenant is considered the heaviest gun of all. Applied successfully, it stops the employee from working in the industry for a period, whereas non-dealing or non-solicitation covenants prevent him from poaching the employer’s clients and operate merely to weaken or sever ties between the employee and the clients. Since non-compete clauses are by their nature so burdensome, the law has traditionally intervened to allow them only modest scope in their application. The case ofMerlin Financial Consultants Ltd v Cooper [2014] EWHC 1196 (QB), however, followsProphet plc v Huggett [2014] EWHC 615 (Ch) in allowing a 12 month restriction in the right circumstances.

Hunters advises both employees and employers in the drafting and enforcement of restrictive covenants, and on compliance matters.

If you would like advice on any aspect of employment law, please contact the partner at Hunters having responsibility for your legal matters, or (for new enquiries) please contact a member of our Business Services team.